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You are here: Home / Blog / Ten Financial Decisions You Must Make During Divorce

Ten Financial Decisions You Must Make During Divorce

June 13, 2017 By Harry Munsinger, J.D., Ph.D. Leave a Comment

divorce financial decisionsYou will face important financial choices during a divorce, including documenting what you own, dealing with the family home, dividing marital property, proving separate property, separating pensions, ensuring access to credit, buying health insurance, determining child support or alimony, allocating debt, and planning your financial future.

1. Determining What You Own

The first step is to document your assets and debts. Collect bank statements, brokerage accounts, tax returns, insurance policies, pension plans, the deed and mortgage, list of valuable personal property, and all liabilities.

2. Who Keeps the House?

Should one spouse keep the house because it’s familiar, or is it better to sell the home, split the proceeds, and rent or buy a smaller home in the same school district so the children won’t have to move and lose contact with their friends?

3. Dividing the Marital Estate

Courts consider many factors in determining the division of community assets. One spouse may receive a larger share of marital property because of unequal earning capacity, fraud, health, age, or need for future support. Courts balance factors to determine a “just and right” division of marital assets.

4. Community or Separate Property?

Assets are presumed to be community property unless proved otherwise by clear and convincing evidence. Separate property includes assets owned before marriage or acquired during marriage by gift or inheritance. Community property includes all other assets and income. Property is characterized as community or separate when title is acquired.

5. Pension Plans

Next to the home, pension plans are often a family’s most valuable asset. Dividing the pension is an important financial decision because it can contribute to long-term financial security. It one spouse keeps the family home, the other spouse may receive the pension as compensation. Because pension plans are denominated in pre-tax dollars, their value must be tax adjusted to ensure a fair division.

6. Cash and Credit

Many individuals don’t think about liquidity and credit when they divorce, but having access to cash and a personal credit card is critical. You will need a checking account to pay bills and a personal credit card, because you may not qualify after you divorce. If you don’t have a personal credit card, get one immediately.

7. Health Insurance

If you don’t have health insurance through your employment, you will need to enroll in a health insurance plan after the divorce. You may purchase health insurance through COBRA or enroll in another health insurance program that meets your needs and financial resources.

8. Child Support and Alimony

Child support payments continue until the last child is 18 or graduates from high school. Only parents can be ordered to pay child support. Payments are calculated by multiplying net monthly resources by percentages based on the number of children involved: 1 = 20%; 2 = 25%, 3 = 30%; 4 = 35%, 5 = 40%; and for more than 5 children not less than 40% of net resources. Alimony is limited to five years for marriages of ten or more years, seven years for marriages between 20 and 30 years, and no more than ten years for marriages over 30 years. Maximum alimony is $5,000 or 20% of gross income, whichever is smaller.

9. Allocating Liabilities

Sometimes the higher earning spouse will take the liabilities in return for a favorable visitation schedule or a larger share of community assets.

10. Planning Your Financial Future

Once you know the extent of your income and assets, you should plan your financial future. Develop a budget and an investment strategy, accumulate an emergency fund, open an IRA, and plan for your children’s education.

It’s important to plan ahead and make rational rather than emotional choices when divorcing. For example, just because you love your family home doesn’t mean you should do everything you can to keep it after the divorce. It may make financial sense to sell the house and buy a smaller one.

All community property is divided in a just and right manner in Texas, while separate property is retained by the original owner. Pension plans are an important tool for long-term financial security, while cash and credit are important immediately. Child support and alimony are intended to help a custodial parent support the children during their school years. Liabilities should be allocated to the spouse who can afford to pay them in return for better visitation times or more community assets. Finally, ensure your financial future by opening a savings account, funding a pension plan, and seeing an estate planning attorney

About Harry Munsinger, J.D., Ph.D.

Harry Munsinger practices collaborative and estate law in San Antonio. He has over twenty years experience resolving disputes involving divorce, probate, wills, and trusts. Harry was an adjunct law professor at the University of Texas and St. Mary’s University. He has published several textbooks and over forty psychological and legal articles. Harry has been a forensic psychology expert, a licensed psychologist and a litigator.

Filed Under: •••, Blog, Divorce and Finance, Harry Munsinger, Our-Featured-Authors Tagged With: Finances, Money

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